CURRENCY: USD continued to bounce, but support still appears more position related than data related. NZD and AUD continued to ease, with NZD falling by more overnight. CAD was the outlier weakening across the board.

GLOBAL MARKETS OVERVIEW: Despite a preponderance of data releases, foreign exchange and fixed income markets were consolidative. Markets seem to be at something of a crossroads at present, waiting for clearer signals on whether US activity will bounce back in Q2, or whether the loss of momentum will extend further. Data releases overnight provided something for everyone: the ADP print for April disappointed, falling to 156k vs 194k in March, but the ISM non-manufacturing and Markit composite PMI for April beat expectations. The yield on the US 10-year note was little changed at 1.78%, and European yields were also fairly steady, though peripherals lost a little ground to the core (Portugal 10-year +7bps, Italy + 5bps). Equity markets were the noticeable underperformer, failing to bounce back following the previous day’s risk-off session. The DAX fell 1.0%, The FTSE 100 was off 1.2% and the main US indexes are down 0.6-0.9% at the time of writing. Oil was little changed, with WTI up 0.4% to USD43.8/bbl. Brent was down 0.7%to USD44.7/bbl, while gold was off 0.4% at $1281 oz.

ANZ’S ASSESSMENT

SELL IN MAY AND GO AWAY? The calendar ticking over into May is traditionally seen as a good time to square up and head away for an extended holiday while markets get a burst of volatility out of their system. It doesn’t always hold, of course - and the first three weeks of 2016 would be a hard act to follow - but it is true that equity market volatility has historically been higher in the second half of the year. One reason that is often touted is lower liquidity over the Northern Hemisphere summer. Some dark clouds are gathering over this holiday season. Most of these aren’t new, of course - question marks over the quality and sustainability of China’s growth and its implications for global commodity prices, the unresolved question of what to do about peripheral Europe and its banks, and political fragmentation, including the Brexit question. But perhaps the biggest question of all, simmering in the background, is "wotcha gonna do about it?" If the global economy were to tip into recession at some point, what ammo, precisely, do central banks have left that won’t do more harm than good? We’ve seen some ‘interesting’ market responses to central bank actions (and inactions) of late that suggest the façade of central bank omnipotence is developing some cracks. And confidence is everything in the monetary policy game.

OVERNIGHT SPECIFICS AND KEY EVENTS

- US: The April ADP report disappointed, coming in at 156k vs expectations of a 195k rise. That was its weakest print in three years. However, disappointment with that was soon offset by the better-than-expected ISM non-manufacturing index. It rose to 55.7, up from 54.5 in March. The component breakdown was also encouraging. The employment sub-index rose to 53.0 vs 50.7, new orders rose to 59.9 vs 56.7 - their highest reading in 6 months - and prices paid rose to 53.4 vs 49.1 as commodity prices have recovered. The data provide some tentative evidence that the non-manufacturing economy has started Q2 on a brighter footing. But the key remains the consumer and the NFP report Friday and retail sales this month are crucial reads on that front.

- US: March factory goods orders rose 1.1% m/m and the final read for durable goods were unchanged at +0.8% m/m in March. The US March trade deficit narrowed sharply to USD40.4bn vs USD47bn in Feb. But that was nothing to celebrate: the fall was led by a 3.4% m/m drop in imports. This was the biggest monthly import drop in 7 years and reflects weakness in consumer and business activity during Q1 and associated inventory adjustment. For example, the petroleum deficit narrowed to USD3bn, the smallest deficit since February 1999. Exports fell 0.9% m/m.

- Euro area: The composite final PMI for April was unchanged at 53.0, virtually unchanged from April's 53.1 and broadly in line with the average for the first 4 months of this year (53.2). It suggests the moderate recovery in the euro area economy is continuing, where annual growth is running at 1.6% y/y. Within the euro zone composite PMI it was worth noting that the new orders index rose to 53.1 vs 52.6, the employment sub-index increased to 51.8 vs 51.4 and the input price index rose to 50.7 vs 49.6 (commodity prices). However, the output price index eased further to 48.3 vs 48.6, suggesting that excess capacity and intense competition continue to put downward pressure on wholesale prices.

- Global equities were again weaker, failing to bounce back from the previous day’s risk-off session. The Euro Stoxx fell 1.2%, with all the major sectors in the red. The DAX fell 1.0%, the FTSE 100 -1.2%, the CAC 1.1% and the IBEX 1.3%. US equities fared marginally better, down 0.6-0.9% at the time of writing in similar-sized falls to the previous day.

- Sovereign yields were little changed, holding onto the previous day’s rally. US 10-year yields were a touch lower at 1.78%, while German 10-year yields held steady at 0.20%.

- It was a mixed night for commodities, with the CRB index unchanged. WTI oil prices posted a small 0.4% gain to USD43.80/bbl, while Brent prices eased by 0.7% (USD44.70/bbl). Spot gold prices eased 0.4%. Within the CRB, energy was strong, as were soft commodities. However, this was offset by falls in industrials, grains, livestock and precious metals.

NZD/USD: EASING…

Kiwi continued to ease yesterday as the USD more broadly advanced. The releases overnight were reasonable overall, showing strength in the US service sector and a bounce in factory orders. However, the ADP employment release and trade balance held some weak detail details, the former falling more than expected and the latter revealing a sharp drop in imports.

Expected range: 0.6860 - 0.6960

NZD/AUD: OSCILLATING…

NZD/AUD dropped back from 0.9250 to test support yesterday, but it quickly bounced back and continued to oscillate near the top of its range. Australian retail sales and trade numbers are out today, but we suspect markets will continue to bounce around.

Expected range: 0.9180 - 0.9280

NZD/EUR: ON HOLD?

EU service sector sentiment eased slightly, with the French the main contributor. Italian and Spanish data exceeded expectations, and sources at the ECB were reported as being happy with policy - for now.

Expected range: 0.5930 - 0.6040

NZD/JPY: CHALLENGING LOWS…

This cross remains caught close to lows, the longer it remains the more likely it is to bounce.

Expected range: 72.80 - 74.50

NZD/GBP: UK SERVICES…

Markets are again becoming cautious about GBP prospects, with GBP/USD following NZD/USD lower at present. Tonight we watch the UK service sector to see if that shows signs of a ‘Brexit induced’ lack of confidence.